Sunday share tips: Persimmon, Vodafone, McBride, Telford Homes
By Digital Look
Date: Sunday 03 Jan 2016
(ShareCast News) - Now might be the right time to sell Persimmon shares, said the Sunday Times' Inside the City column, with a trading update due on Thursday. Investors in the house builder have seen the price triple in the last three years and received £800m in dividends. Persimmon was one of three residential builders to figure in the top ten FTSE 100 price risers over the year, and one of four sector-mates in the blue chip index, which is unprecedented and hints at a bubble.
Persimmon snapped up land shrewdly in previous years, which has allowed it to make hay as the market heated up. But there are increasing suggestions that the company is on the verge of tougher times, with the loan-to-income ratio in London a vertiginous 3.25, well above the 2.9 peak in pre-crisis 2007. New regulations clamping down on mortgages could soon be joined by further tightening as policymakers wince at lending risks. Building costs are meanwhile rising too. While a crash seems unlikely, as the UK remains in need of many more homes, Persimmon's p/e ratio of around 14 could seem unwieldy if market conditions turn against the sector.
Questor in the Sunday Telegraph recommended six shares to outperform the market in 2016, including Vodafone, Keller, McBride, Senior and small cap Carclo, plus Ted Baker as a potential short-selling opportunity at 35 times earnings. Vodafone is chosen despite its heady p/e ratio of 45 and thin dividend cover, as the core business offers deal potential as part of sector consolidation. Engineer Senior is a takeover target in the aerospace sector due to its solid order book and the consolidation also taking place there.
McBride, which makes supermarket own-brand cleaning and consumer care products, should benefit from a recent turnaround under new management and the trend towards discounters in the retail sector. Keller, the US-focused construction group, is throwing off cash and has a powerful dividend record, but is trading at an undemanding nine times forward earnings and as a specialist in building flood defences the company could benefit in the UK as well as the recovery in the US economy. Carlo's diversification into LED lighting has helped its recovery since it lost momentum in 2013, with the automative sector providing increasing demand.
Midas in the Mail on Sunday had three tips for the new year, Telford Homes, Allied Minds and Elegant Hotels. London-focused Telford Homes concentrates on locations just outside the premium areas of the capital's housing market, building up to 700 flats per year and looking to double that by 2020 as the demand for affordable homes rockets ever higher. Shares in the company have dipped after a £50m fundraising to invest in growth, with some investors concerned about the London market, but they look good value and offer a reasonable dividend yield.
Although its shares have been hit hard last year, Allied Minds's has the support of many major investors for its portfolio of 23 companies spun out to commercialise technology developed by US government departments and Ivy League universities. Investments include smartphone cyber security specialist Optio Labs, which plans an IPO in coming years; Federated Wireless, which resells mobile phone capacity from the military to the private sector; mobile and laptop power specialist Spin Transfer; and Harvard spinout SciFluor, which fluorinates drugs to make them safer and more effective. Elegant Hotels, which floated on AIM last May, is the owner of five hotels and a restaurant on the Caribbean island of Barbados that have recently undergone a much-needed refurbishment. Management are seeking acquisitions as they aim to double the company's size over the next three years.
Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.
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